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SPRING BUDGET 2017 SPRING BUDGET 2017 What did it mean for your financial plans? THE CHANCELLOR OF THE EXCHEQUER, PHILIP HAMMOND, DELIVERED HIS SPRING BUDGET TO PARLIAMENT ON 8 MARCH 2017. THIS BUDGET WAS THE LAST ONE TO TAKE PLACE IN THE SPRING. THE CHANCELLOR SAID LAST YEAR THAT HE WANTED TO SIMPLIFY THE WHOLE BUSINESS OF SETTING TAXES AND GOVERNMENT SPENDING, WHICH HAD BECOME TOO COMPLICATED. Key points from the Budget that could impact your personal financial planning: NEW NATIONAL SAVINGS AND INVESTMENTS BOND LAUNCHED A new NS&I bond paying 2.2% over a term of three years on deposits of up to £3,000 is now available for 12 months from April 2017. £5K TAX-FREE DIVIDEND ALLOWANCE CUT The £5,000 tax-free allowance which commenced in 2016 is being cut to £2,000 from 2018. INCOME TAX ALLOWANCES CONFIRMED The personal tax-free allowance has increased to £11,500, with the higher rate tax band rising from £42,385 to £45,000. The Chancellor said the changes ‘will make 29 million people better off’. The additional rate tax band remains at £150,000. Those in Scotland will have different Income Tax bands for earned income. NEW INHERITANCE TAX RESIDENCE ALLOWANCE When you pass on your main family home, you can now receive an additional £100,000 on top of the £325,000 Inheritance Tax allowance via the new main residence nil-rate band allowance. Each individual can pass on up to £425,000 without paying Inheritance Tax as long as your family home is passed on to either children or grandchildren (and your share is worth at least £100,000 in 2017/18). The higher figure applies where more than one nil-rate band is available. LIFETIME INDIVIDUAL SAVINGS ACCOUNT (LISA) This new savings product is available to adults aged 18 to 39. It’s designed to support plans to save for retirement or a first home. If you are a first-time house buyer, you can pay up to £4,000 a year into a Lifetime ISA and receive a 25% government bonus. Contributions can continue up to age 50 and can be used to purchase a first property at any time from 12 months after opening the account, or be withdrawn for retirement from age 60. £20K ISA ALLOWANCE Individual Savings Accounts (ISAs) continue to provide a tax-efficient saving option for many. How much you can save into an ISA each year has been increased to £20,000 – an extra £4,760 of tax-efficient savings. This increase, from April 2017, complements the new dividend allowance and new tax treatment of savings interest. BUY-TO-LET TAX CHANGES If you have a buy-to-let property, the amount of mortgage costs you can offset against rental income to assess your profits is being reduced. The reductions will be phased and may impact how much tax you may need to pay. MONEY PURCHASE ANNUAL ALLOWANCE CUT If you have accessed a money purchase pension flexibly, how much you can then pay into your money purchase pension under the Money Purchase Annual Allowance (MPAA) and receive tax relief is being reduced from £10,000 to £4,000. This only affects you if you have flexibly accessed your defined contribution pension. The reduction doesn’t apply if you have only taken your tax-free cash sum or are already in capped drawdown and remain within the capped drawdown rules. t IT’S GOOD TO TALK The Chancellor resisted making far-reaching tax changes in this last Spring Budget, but some of the announcements could have had an impact on your personal or business situation. If you would like to discuss your situation, or if you have any further questions, please contact us. LEVELS, BASES OF AND RELIEFS FROM TAXATION MAY BE SUBJECT TO CHANGE, AND THEIR VALUE DEPENDS ON THE INDIVIDUAL CIRCUMSTANCES OF THE INVESTOR. YOUR HOME OR PROPERTY MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE. THE VALUE OF YOUR INVESTMENTS CAN GO DOWN AS WELL AS UP, AND YOU MAY NOT GET BACK THE FULL AMOUNT INVESTED.
ESTATE PLANNING PASSING ON WEALTH WITHOUT FURTHER TAX CHARGES Over-55s risk falling prey to the inheritance ‘sibling tax trap’ ON 6 APRIL 2017, A NEW ADDITIONAL MAIN RESIDENCE NIL-RATE BAND (RNRB) WAS INTRODUCED, WHICH ALLOWS FOR LESS INHERITANCE TAX TO BE PAID IN SITUATIONS WHEN A FAMILY HOME IS LEFT TO CHILDREN, GRANDCHILDREN OR CERTAIN OTHER ‘QUALIFYING BENEFICIARIES’ – INCLUDING STEPCHILDREN AND FOSTER CHILDREN. But [1] more than 1.7 million over-55s could miss out because they’ve assigned their sibling to inherit their family home and not a direct descendant. PASSING A FAMILY HOME TO SIBLINGS RATHER THAN TO CHILDREN OR OTHER DESCENDANTS Research from the LV= independent legal service shows that one in ten over-55s (10%) have written their Will to pass their family home to their siblings rather than to their children or other descendants, which would lead them to be ineligible to utilise the additional RNRB. Previously, if an estate of a married couple was left to any descendant, anything above the £650,000 combined threshold (£325,000 allowance per individual) would have been taxed at 40% Inheritance Tax. INHERITANCE TAX–FREE ALLOWANCE FOR THE FAMILY HOME However, from 6 April 2017, the RNRB has been introduced with an RNRB of £100,000 per person, taking the total maximum individual personal allowance for Inheritance Tax from the current level of £325,000 to up to £425,000, or a total of up to £850,000 for married couples and registered civil partnerships. LEAVING THE FAMILY ESTATE WITH AN INHERITANCE TAX LIABILITY The allowance for the family home is set to increase by £25,000 per tax year, so by 6 April 2020 onwards a couple with a family home may potentially be able to leave their children or other direct descendants a combined estate of up to £1 million without any Inheritance Tax to pay. However, if the same couple were to leave their family estate to a sibling, the Inheritance Tax of 40% would apply on the difference between £650,000 and £1 million, leaving an Inheritance Tax bill of up to £140,000. YOU MAY NEED TO AMEND YOUR WILL The majority of the people surveyed (72%) don’t know of or understand the changes that have come into force in this new tax year. If appropriate, you may need to amend your Will to ensure your estate can benefit from the increased allowance. Even among those who do know about the changes, half (53%) didn’t realise that the increased tax-free amount can apply to cash proceeds from the sale of the home if you downsize or have to go into care. WELL-THOUGHT-OUT ESTATE PLAN Worse still, many people living ‘as married’ with partners – who would want their wealth passed to each other – don’t have Wills (44%). Therefore, unless assets are jointly owned as ‘joint tenants’, their estate will pass to their children who would have no obligation to provide anything to their father or mother’s partner. It has never been more important to have a well-thought-out estate plan, complete with an appropriate Will and supporting documentation, to ensure your assets can pass to your loved ones in a tax-efficient manner. t COULD YOU FALL PREY TO THE SIBLING TRAP? This increased Inheritance Tax allowance is a boost to those who’ve seen their homes rise in value and want to be able to pass on this wealth without further tax charges, but it’s crucial that they don’t fall prey to the sibling trap. The RNRB rules can be complex. Getting the right professional advice and amending your Will could take a few hours, but with potential to save a lot of money it’s time well spent. LEVELS, BASES OF AND RELIEFS FROM TAXATION MAY BE SUBJECT TO CHANGE, AND THEIR VALUE DEPENDS ON THE INDIVIDUAL CIRCUMSTANCES OF THE INVESTOR. Source data: [1] There are 17.6 million over-55s in the UK (ONS population maps). Of the over-55s surveyed, 10% said they’d left their home to siblings rather than their children or grandchildren – equivalent to 1.7 million over-55s. LV= commissioned Opinium Research to conduct bespoke research among a sample of 1,000 UK residents who are over 55 years of age. Surveys were conducted online between 8 and 14 December 2016 and are nationally representative. 11
Page 1 and 2: TM PRISMATICWEALTH A Full Spectrum
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